What Are Cognitive Biases?
Cognitive Biases are mental shortcuts that humans evolved to quickly make judgements and solve problems. They work to help conserve mental energy and protect the brain from overload.
Why Do We Have Cognitive Biases?
At every moment of every day, your brain is constantly being flooded with millions of bits of information.
However, too much stimuli leads to sensory overload and therefore a breakdown in functionality. From an evolutionary perspective, this could have proved fatal if we were distracted from reacting to a lethal threat (e.g. a saber-toothed tiger).
Consequently, humans evolved psychological mechanisms that pushed less (though still important) information to the peripheries of our conscious awareness so that we could focus on what was most important. In other words, they enhanced our survival.
“Civilization advances by extending the number of operations we can perform without thinking about them.” ― Alfred North Whitehead
List Of Cognitive Biases
Below is a list of the most relevant cognitive biases in behavioural economics.
- Action Bias: Tendency to favour action over inaction (doing something is better than doing nothing).
- Affect Heuristic: Tendency to rely on one’s emotions rather logic when making decisions.
- Ambiguity Effect: Tendency to avoid uncertain options and favour options that are more certain.
- Anchoring Bias: Tendency to rely too heavily on the first piece of information as a reference point.
- Attentional Bias: Tendency to focus on certain stimuli or information while ignoring others.
- Availability Heuristic: Tendency to prioritise information that comes to mind quickly and easily.
- Adjustment: Uses starting point (anchor) and adjusts until acceptable value is reached.
- Bandwagon Effect: Tendency to adopt certain behaviours because many other people do the same.
- Ben Franklin Effect: Tendency to like someone more after performing a favour for them.
- Bottom-Dollar Effect: Tendency to be less satisfied with purchases that cause a stress on finances.
- Bounded Rationality: Tendency to seek a decision that is good enough rather than the best option.
- Base Rate Fallacy: Tendency to place too little weight on the base (original) rate of possibility.
- Blemishing Effect: Tendency for a little negative information to make something more attractive.
- Bye-now Effect: Tendency for consumers to think of the word “buy” when they read the word “bye.”
- Cashless Effect: The more tangible money is, the more psychological painful we experience.
- Category Size Bias: Tendency to believe outcomes are likelier if part of a large, not smaller category.
- Cognitive Dissonance: Tendency to feel discomfort when a belief doesn’t align with actions.
- Cognitive Fluency: How easy we can process information.
- Commitment Bias: Tendency to be consistent with past behaviours, particularly if engaged in public.
- Completion Bias: Tendency to feel the need to complete tasks (which results in dopamine).
- Confirmation Bias: Tendency to seek information that confirms our pre-existing beliefs.
- Contrast Principle: Tendency to understand something better in comparison than in isolation.
- Decision Fatigue: Tendency for mental bandwidth to be depleted with every additional decision.
- Decoy Effect: Addition of a third, less attractive option influences our perception of the original two.
- Desirability Bias: Tendency to what we want to see.
- Disposition Effect: Tendency to sell winning stocks too soon and hold losing stocks too long.
- Distinction Bias: Tendency to view two options as more dissimilar when assessing them together.
- Dunning-Kruger Effect: Tendency to wrongly overestimate one’s competency in a specific area.
- Empathy Gap: Tendency to struggle to understand mental states that are different from our own.
- Endowment Effect: Tendency to value what we own more than what we do not own.
- Extrinsic Incentive Bias: Tendency to attribute more power to external incentives over internal.
- Framing Effect: Tendency for decisions to be influenced by the way information is presented.
- Functional Fixedness: Tendency to see objects as only working in a way they are traditionally used.
- Fundamental Attribution Error: Giving more weight to dispositional factors over situational ones.
- Gambler’s Fallacy: False belief that prior outcomes influence the probability of a future outcome.
- Gap Instinct: Tendency to divide things in two distinct groups with imagined gap between.
- Google Effect: Tendency to forget information that is readily available through search engines.
- Halo Effect: Tendency for one characteristic to affect one’s perception of the whole.
- Hard-Easy Effect: Tendency to not realize the actual difficulty (either hard or easy) of a task.
- Hindsight Bias: Tendency to look back at an unpredictable event and think it was easily predictable.
- Hot-hand Fallacy: False belief that previous successes or failures influence future successes.
- Home Bias: Tendency to invest majority of portfolio in domestic equities instead of foreign.
- Hyperbolic Discounting: Tendency to prioritise short-term rewards over long-term rewards.
- Identifiable Victim Effect: Tendency to offer greater empathy to a individuals instead of groups.
- IKEA Effect: Tendency to value an object more if one assembles it themselves.
- Illusion Of Control: Tendency to exaggerate one’s ability to produce a desired outcome.
- Illusion Of Explanatory Depth: Tendency to overestimate out understanding of something.
- Illusion Of Validity: Tendency to overestimate one’s ability to predict outcomes when analysing data.
- Illusory Correlation: Tendency to perceive a relationship between two variables when there is none.
- Illusory Truth Effect: Being repeatedly exposed to information influences what we believe to be true.
- Impact Bias: Tendency to overestimate the length or intensity of future feeling states.
- In-Group Bias: Tendency to give preferential treatment to those belonging to the same group.
- Incentivization: Attaching reward to a desired behaviour and punishment to an undesired behaviour.
- Just-World Hypothesis: Need to believe that the world is an orderly, predictable and just place.
- Law Of The Instrument: Tendency to use the same “tool” for everything.
- Less-Is-Better Effect: Tendency to prefer the worse of two options when presented separately.
- Levelling & Sharpening: Two contrasting automatic functions within our memory.
- Levels Of Processing: How deep information is encoded affects how well it is remembered.
- Lindy Effect: The older something is, the longer it’s likely to be around in the future.
- Loss Aversion: Tendency for pain to have a greater psychological impact than equivalent pleasure.
- Mental Accounting: Tendency to assign different mental values to the same sum of money.
- Mere Exposure Effect: Tendency to develop preferences for things we are familiar with.
- Motivating Uncertainty Effect: Tendency for unknown rewards to be more motivating than known
- Naive Realism: Tendency to believe our perception is an exact reflection of reality.
- Negative Bias: Tendency to pay more attention to negative experiences over positive experiences.
- Noble Edge Effect: Tendency for consumers to perceive noble companies as superior.
- Nostalgia Effect: Tendency to recall the past more fondly than the present.
- Observer Effect: Observing the process changes the process.
- Omission Bias: Tendency to favour inaction over action, especially when facing difficult decisions.
- Optimism Bias: Tendency to underestimate negative events and overestimate positive events.
- Ostrich Effect: Tendency to avoid information perceived as potentially unpleasant.
- Overjustification Effect: Tendency for external rewards to diminish intrinsic motivation.
- Paralysis By Analysis: Tendency to get overwhelmed by too many options.
- Peak-End Rule: Tendency to judge an experience based on how we feel at its peak and at its end.
- Pessimism Bias: Tendency to overestimate negative events and underestimate positive events.
- Planning Fallacy: Tendency to underestimate the amount of time it will take to complete a task.
- Positivity Bias: Tendency to focus on positive information and relatively neglect negative.
- Primacy Effect: Tendency to remember first piece of information better than later information.
- Priming: Tendency for certain stimulus to influence one’s response to subsequent stimulus.
- Projection Bias: Tendency to assume our behaviours will remain the same over time.
- Pygmalion Effect: Tendency for an individual’s performance to be influenced by others’ expectations.
- Reactive Devaluation: Tendency to devalue a proposal if it appears to originate from an antagonist.
- Recency Bias: Tendency to favour recent events over historic ones.
- Regret Aversion: Tendency to make decisions to avoid regretting an alternative decision in future.
- Representativeness: Making decisions based on most representative existing mental model.
- Response Bias: Tendency to provide inaccurate or false answers to self-report questions
- Restraint Bias: Tendency to overestimate the level of control we have over our impulsive behaviours.
- Rosy Retrospection: Tendency to recall the past more fondly than the present.
- Salience Bias: Tendency to focus on information that stands out.
- Self-serving Bias: Tendency to attribute success to internal factors and failure to external factors.
- Serial Position Effect: Tendency to remember first and last items in a series better than the middle.
- Sexual Overperception Bias: Tendency to overestimate another individual’s sexual interest in oneself.
- Social Norms: Collectively held beliefs about what behaviours are appropriate in a given situation.
- Spacing Effect: Learning is more effective when study sessions are spaced out.
- Spotlight Effect: Tendency to overestimate the degree to which one is noticed.
- Status Quo Bias: Tendency to prefer things to stay the same than to change.
- Suggestibility: Tendency to be susceptible to behavioural change based on suggestions of others.
- Survivorship Bias: Tendency to focus on outcomes that have passed some kind of selection process.
- Sunk Cost Fallacy: Tendency to continue an endeavour due to past investment.
- Take-The-Best Heuristic: Decision-making shortcut used when choosing between alternatives.
- What The Hell Effect: Cycle felt when you indulge, regret action and then go back for more.
- Zero Risk Bias: Tendency to desire to entirely avoid risk whenever possible.